News & Views from 465 California Street

There Are No Answers

Clint Reilly
Nov
18
2008

Three of the top five Wall Street investment banks have been financially destroyed in the past two months – Lehman Bros., Merrill Lynch and Bear Stearns.

If investment banking leaders created this mess, why have we tasked one of them with resurrecting the global financial system?

Consider it part of our national delusion. We blindly assume that our leaders have all the answers when they obviously don’t.

We watch as Treasury Secretary Henry Paulson improvises his way through the current fiscal crisis. In the beginning, he promised that the federal government would buy troubled assets with a $700 billion bailout fund – disbursed at his sole discretion. Then he abruptly reversed course last week, announcing that he will focus instead on thawing the still frozen credit markets.

The fact is neither Henry Paulson – nor Fed Chairman Ben Bernanke – has ever confronted a problem anything like the meltdown of the global financial system.

Bernanke – an expert on the Great Depression – is said to believe that the contraction of credit following the stock market crash in 1929 caused the economy to shrink, spurring unemployment that devastated purchasing power on Main Street. Hence, today’s plan to bail out banks so they can continue to lend.
One problem! Banks aren’t loaning money even after receiving taxpayer billions.

Remember the superlatives thrown at retiring Federal Reserve Chairman Alan Greenspan when he stepped off the throne? The “Oracle” was hailed as the “best ever” in his role. Now, Greenspan’s easy credit policies appear to have spawned a nuclear asset bubble that threatens to detonate markets from the Middle East to Japan.

Does anyone seriously think that the loquacious Barney Frank – Chairman of the House Financial Services Committee – has the answer? Yes, Oversight and Reform Committee Chair Henry Waxman can ask an embarrassing question. But does he have a clue about how to get out of this mess?

Washington Democrats remember when Franklin Raines and Jim Johnson – successive Fannie Mae executives – were hailed for innovative financial engineering that enabled working families to own homes. Now subprime loans generated by lax lending standards have laid low both our banking system and an entire generation of homeowners. Fat pay packages and frothy bonuses are what’s left of the Raines/Johnson reputations.

We want leaders to have answers. But alas, they rarely do.

Consider the predicament of Jeffrey Immelt, CEO of General Electric. He took over from the legendary Jack Welsh – named the top executive of the 20th century. The corporation makes everything from refrigerators to power plants. It owns a movie studio and is one of the world’s biggest lenders. Yet beleaguered stockholders of GE have seen their investment dwindle.

There is no playbook for the worst economic crisis since the Great Depression.

What about Rick Wagoner, the head of General Motors? Does anyone truly believe that Wagoner can revive this gasping industrial dinosaur?

And if he can’t, why should we think that a second infusion of taxpayer billions into Detroit is anything but a poorly conceived Band-Aid?

Many of our business leaders are empty suits. They decry politicians but the trillions lost in today’s meltdown are a result of private sector greed, incompetence and amorality.

That’s not to say that we can absolve our elected leaders from any wrongdoing.

The Iraq War was prosecuted over weapons of mass destruction that apparently did not exist. Who do we sue?

We can land a probe on Mars but we can’t find Osama bin Laden? Where’s the GPS?

California’s budget was balanced only days ago but now we have a $28 billion deficit. Who rigged the calculators?

In our roiling global economy and perilous geopolitical gestalt, easy answers are an illusion. Beware the business or political leader who hawks them.

Comments (7)

  • What is the connection between our six year war in Iraq and our current fiscal woes? Seems to me the exact same situation occurred after our loss in Vietnam….I could answer my own question by reviewing the front page of the NYTimes for a few years….

    Posted by: Steve L. | November 18th, 2008 at 9:23 am

  • Clint,

    I totally agree with your article today. I don’t think anyone knows what to do to right the economic ship at the state or national or worldwide levels.

    Many years ago I read a book entitled “The Future of Capitalism” by an economist named Lester Thurow. The main premise of his book is that when the Berlin wall fell much of the world would turn to capitalism to drive their economies – an event which effectively eliminated the failing economic model of Communism – which meant that we would experience an unprecedented time in history with unknown economic consequences.

    No doubt this is where the world finds itself today.

    Like you I think there is no quick fix to the worldwide economic problems – because it is just not economic – it’s also political.

    Here in the State of California voters seem to think there is an endless pot of money to fund anything and everything that gets put a ballot. Most folks don’t seem to understand that the money is coming out of their pockets through the taxes they pay. They must not understand the definition of the word deficit. Heck, I am wondering if anyone in Sacramento, outside of the few Republicans in state office, understands the definition of deficit. Or perhaps they do but believe it is more important for them to get re-elected than it is to take the steps necessary to truly represent the people’s interests.

    On the national level I hope and pray that Obama is up to the challenge to provide the type of leadership that is needed to get the U.S. and the rest of the world back on a solid economic track. It will take all the vigor and will he can muster to provide the type of bi-partisan leadership needed to move us in a positive direction. It will take new ways of thinking and the creation of a vision that is not a retread of the past but a map to the future.

    Perhaps he will be the unprecedented leader we need for the unprecedented time in which we live. I wish him much success.

    Regards,

    Dennis Nevin

    Posted by: Dennis Nevin | November 18th, 2008 at 9:59 am

  • Easy answers are indeed an illusion.

    I think our new President Elect is very mindful of the danger of hawking easy solutions. He appears to be working hard to walk a fine line which balances hope for the future yet setting expectations about how fast we will be able to resolve the serious issues facing our nation and world.

    I worry greatly about a defeatist attitude smothering us in these tough times. We must continue to work towards our solutions just as hard as many of us worked to get Obama elected. Moveon.org has mobilized and organized house parties to address this issue on November 20th called “Fired Up and Ready to go”. Thomas Friedman may be the eternal optimist but he does outline an exciting set of proposals in his book Hot, Flat and Crowded. Van Jones has taken the bull by the horns and turned the environmental issue from a dire warning into ” a substantive and viable plan for solving the biggest issues facing the country-the failing economy and our devasted environment.” Mr Jones’ new book, The Green Collar Economy is another example of the creative thinking coming from a new group of thinkers who have specific and immediate solutions for the complex problems we face.

    We need persistent optimists who have a vision. Freidman and Van Jones are great examples. This country has elected a leader with the ability to inspire and lift us out of our collective distrust of politicians and business leaders.

    Posted by: Melinda Maginn | November 18th, 2008 at 11:51 am

  • I usually don’t respond to newspaper articles, voicing my opinion,
    because there will always be that “fringe” element who like to throw
    verbal tomatoes at anybody who sticks their head(s) up. But, this
    financial mess you have explained so eloquently in your article has
    spurred me on to do so. So, here goes.

    1. Who is to blame?
    We are. All of us who place blind faith in politicians and Big
    Company execs, re-electing the same good ‘ol boys and expecting
    different results this time. Remember the movie “Protocol”, where
    Goldie Hawn played an unsuspecting dog walker who saved a Sheik’s
    life? The important part, or message of that story is that it is OUR
    responsibility to hold the politician’s feet to the fire when they
    overstep their bounds or abuse their power. So, we have to watch them,
    as Goldie’s character put it, “Like A Hawk”. That’s why newspapers are
    so important especially if they have the guts to expose the crooks.
    Unfortunately, I haven’t seen, lately, any reporters or newspapers with
    the gumption to take on that task, including theCC Times. That’s why
    your articles are so important. I would like to get this comment out
    to the talking heads on the “Network News” to see what their response
    would be, but I don’t know how to effectively do so. I am so in favor
    of term limits for this very reason. Maybe you can help.

    2. What do we do?

    First, get out of NAFTA. It was promoted as a great idea by the
    politicians and BIG COMPANY CEO’s who saw a way to employ what amounts
    to slave labor. Millions of American citizens lost their jobs as
    company after company left the USA and set up manufacturing plants in
    Mexico. Canada took advantage of NAFTA, big time. American workers
    lost, with the “advantages” touted by the politicians never
    materializing. It doesn’t work. If something doesn’t work, don’t try
    to “bail it out”. Get rid of it.

    Secondly, don’t bail out the auto industry by using taxpayer money. I
    recommend using an alternate source of funds for the auto industry
    bail-out. This is going to go over like a lead balloon. Force the Oil
    Companies to do it. I use the word force deliberately. If this
    suggestion were to be taken seriously, the BIG THREE auto companies and
    BIG OIL would use their considerable political clout to kill this idea,
    in a hurry. The auto companies and big oil like gasoline. The
    manufacturing, distribution and retail infrastructure is all set up and
    in place for the selling of gasoline. Oh, sure. They have big
    advertising budgets to show how Green they are and how much money they
    invest in alternate energy, but have you seen any push to get the
    infrastructure ready for alternate fuels? I have, in Euoropean
    countries, where alternate fuels is accelerating ahead of us. The
    American auto makers and oil companies favor hybrid vehicles. Why?
    Because a hybrid uses a gasoline engine for power boosting. They are
    NOT going to promote a vehicle that utilizes something other than
    gasoline, like Hydrogen (Much safer than Gasoline!), or electric power
    only (great idea for city taxies and buses). We must force them. How,
    is the problem.

    Third. Accelerate the construction of nuclear power generation. The
    technology for this has been developed over many years, is well known
    and nothing “new” has to be invented. The safety record of the nuclear
    power industry is stellar. What about Chernoble and Three Mile Island,
    you say? Of the two, Chernoble was a true disaster. Three Mile Island
    was a disaster, but contained by the savvy of sharp technicians ( I
    personally know one of them). Any others? No. In fact US and former
    Soviet navies were the largest users of nuclear power. They both had
    accidents at sea where subs were lost but, and this is important, there
    was NEVER a release of radiation to the oceans of the world.
    Technology is now being developed to re-use spent nuclear fuel and
    rendering it far less radioactive in the process and producing lower
    amounts of the byproducts. The important point is that it is safe, if
    we can get by the word, nuclear. The problem with nuclear power is
    NIMBY ( not in my back yard). So, we site these plants in more remote
    areas, but close enough to make grid connection easier. As these
    plants come on line, we utilize the time to develop alternate energy
    ideas. That’s a whole ‘nuther topic.

    I am going to end here. I have no suggestions for the financial mess
    other than prosecute the b**tards who stole our money. That would be
    only a “feel good”, not a solution. I’m leaning toward a privately
    funded oversight team with the clout to watch over these politicians
    “Like A Hawk”. Don’t know how to make that happen.

    I’m done. Let me know your comments, Clint.

    Hank T.

    Posted by: Hank T. | November 18th, 2008 at 12:38 pm

  • I read your “There Are No Answers” column in the Nov. 18 issue of the Marin I-J.
    With respect to the current economic malaise and the other sore points you highlight, I agree with you that the “experts” have been way off the mark, but I have to ask you….what solutions do you bring to the table? I get very tired of reading criticism from people who fail to offer alternatives or practical suggestions. (To tar and feather the scoundrels does not fit my definition of “practical”.) Do you have any suggestions….or do I just put you into the category of Carping Critic Who Isn’t Helping?

    I generally enjoy reading your commentaries, and I agree with many of your positions, but I do wish you could suggest more answers to our problems.

    Thanks.
    Ken S

    Posted by: Ken S. | November 18th, 2008 at 1:44 pm

  • Really some scary times. Hit me today learning that Ellis Brooks will stop selling new cars.

    Posted by: Bart | November 18th, 2008 at 1:45 pm

  • Time to wonder where any money will be coming into government coffers to do anything with just about every person having deductable financial losses being declared for this year’s tax returns. Time to think about a tax on vehicle fuels of 20-30 cents/gal. We went through $2.00/gal up and down now without really being inconvenience by the first $1.00/gal. We have to find some money somewhere that won’t allow a tax write-off, so let’s get the economy going with such a tax increase to spur work projects in road improvements to get people jobs. Some money could go to green transportation work such as windmills to provide electricity for changing diesel electric engines to run on electricity removing the hazardous particulates that diesels emit along with carbon dioxide. Dr. J. Singmaster, Fremont, CA

    Posted by: Dr. James Singmaster | November 18th, 2008 at 3:43 pm

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